Courtesy of Advanced Research Investment Solutions (ARIS), the actively managed RPAR Risk Parity ETF (RPAR debuted in December and that’s suddenly looking like good timing for a product designed to be the ETF spin on the famed Bridgewater Associates all-weather portfolio.

ARIS will leverage its extensive experience with risk parity investment strategies to help guide the development and management of RPAR, as the firm currently utilizes this approach for many of its existing clients. Prior to starting ARIS, Co-Founder Damien Bisserier was a Senior Investment Associate at Bridgewater Associates, known for being one of the world’s largest hedge fund managers, and leaders in risk parity.

Over the past month, RPAR is “down just 4.2%, despite having a 28% stock weighting. That’s while the S&P 500 index has dropped 12%, and every asset allocation ETF with similar equity exposure has had significant losses,” reports Lewis Braham for Barron’s.

RPAR Methodology

RPAR invests across multiple asset classes and sectors. At launch, it will be roughly exposed 25% to global equities, 25% to commodities, 35% to long-duration TIPS, and 15% to long-duration Treasuries. The fund will rebalance on a quarterly basis and will have a gross expense ratio of 0.53%, which is low relative to the category average.

“Since stocks historically have been more volatile than bonds, they receive a smaller percentage of the ETF’s asset allocation, even though they account for 28% of its risk allocation,” according to Barron’s. “Treasury bonds account for 35% of the portfolio, as do TIPS, but more volatile stocks and commodities are each 25%—for a total of 120%. The figure exceeds 100% because the fund employs leverage to amplify its bond exposure, a typical feature for risk parity funds.”

The fund has proven successful, amassing $241 million in assets under management in just three months on the market.

Under increasingly uncertain market conditions across the globe, investors continue to consider their portfolio allocations. By diversifying across market segments that have historically gone up and down in varying economic environments, risk parity strategies aim to provide investors a more consistent return over time. This approach differs from traditional portfolio allocation strategies, which tend to be overly dependent on environments that favor strong equity performance.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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